Even after your car is repossessed, your financial obligations might not be over. It’s crucial to understand that repossession doesn’t always wipe the slate clean. Here’s a breakdown of what you need to know about the financial aftermath of car repossession.
Understanding Repossession Fees
When your lender repossesses your vehicle, they typically incur costs for picking it up and storing it. These repossession fees are usually passed on to you, the borrower. While lenders are entitled to recover these costs, they must be “reasonable.”
The definition of “reasonable” isn’t fixed and can be interpreted by courts depending on various factors. These factors include the type of vehicle, the repossession method used, and the location of the repossession. Don’t hesitate to request a detailed breakdown of all repossession costs from your lender to ensure transparency and accuracy.
Deficiency Balance and Surplus After Car Repossession Sale
After repossession, the lender will typically sell your car. This sale is intended to recover the outstanding loan amount. However, the sale price might not always cover the full amount you still owe.
If the sale price of your repossessed vehicle is less than the remaining loan balance plus repossession expenses, you will be responsible for paying the “deficiency balance.” This deficiency is the difference between what you owed and what the car sold for, plus the repossession fees.
For example, imagine you still owe $10,000 on your car loan, and after repossession and sale, the car is sold for $7,500. In this scenario, you would owe a deficiency balance of $2,500, in addition to the repossession fees. Failure to pay this balance can lead the lender to involve debt collectors to recover the funds.
On the other hand, if your car is sold for more than what you owe on the loan, after covering repossession fees and the outstanding balance, you are entitled to receive the surplus funds.
It’s important to note that lenders are legally obligated to sell the repossessed vehicle in a “commercially reasonable manner.” If you suspect that the sale price was unreasonably low, it’s advisable to seek legal counsel to understand your rights and options. Consulting with an attorney can help you determine if the sale was conducted fairly.
Your Rights and State Laws After Repossession
Beyond federal regulations, your state laws also play a significant role in car repossession procedures and your rights. State laws can vary, potentially offering additional protections or specific requirements for lenders.
To gain a deeper understanding of your rights in your specific state, consider reaching out to your state attorney general’s office or your state consumer protection office. These resources can provide valuable information about state-specific regulations regarding car repossession and debt collection. Furthermore, seeking advice from a private attorney or a local legal services office can offer personalized guidance based on your situation and local laws.
Understanding what happens if your car gets repossessed is crucial for managing the financial consequences and protecting your rights. Being informed about repossession fees, deficiency balances, and your legal rights empowers you to navigate this challenging situation effectively.
